Advance & Create, Together ACT Kerala Vision 2025 for Kerala

Transcription

1 Advance & Create, Together ACT Kerala Vision 2025 for Kerala

2 Table of Contents EXECUTIVE SUMMARY INTRODUCTION Scope and Coverage of this Report Approach to the Study Structure of this Report OVERVIEW OF KERALA Current Status of the Kerala Economy Sectors driving the state s economy State of Social Infrastucture in Kerala Fiscal health of Kerala Key developmental challenges facing the state SHAPE OF THINGS TO COME Growth of the Knowledge Economy Global and connected economies Jobs without boundaries Exponential increase in pace of change VISION 2025 FOR KERALA Key Vision Themes Green and Sustainable Development Opportunities for All REALISING THE VISION THE WAY FORWARD Page 2

3 Executive Summary 1. The Kerala State Council of the Confederation of Indian Industry (CII) mandated ICRA Management Consulting Services (IMaCS) 1 for assistance in formulating Vision 2025 for the state of Kerala. 2. The study arises in the background of a rapid economic growth that has been witnessed in Kerala in the last decade and Southern region of India in general. CII feels the need for a well thought out development plan for the State and a clear vision that would propel the State forward. 3. Our approach to developing a Vision 2025 for Kerala encompassed analysing all facets of the State including economic growth, social development, analysis of performance of and issues impacting specific sectors, the factor advantages of the state and aspirations of it s people. 4. We have conducted the study by interacting with the principal stakeholders in State and by building on secondary research on the State. The principal stakeholders in the Vision 2025 for Kerala include the following: Spectrum of political leadership in the state both the ruling and opposition parties The State government secretaries of key government departments The entire industry in the State Key sections of society Farmers, Academicians, Students, etc The residents of the state The stakeholders have been met through one-on-one discussions and focus group discussions 5. In developing a Vision 2025 for Kerala, we sought answers to the following : The starting point: Where is state today in terms of various facets of development? What are the issues impacting the state? What are the factor advantages the state enjoys today? What do we want the state to look like in 2025? In other words, what is the development potential of the state? How do we attain the vision? What are the initiatives that need to be taken to facilitate the attainment of this potential? 1 IMaCS was formerly known as ICRA Advisory Services Page 3

4 6. The study was carried out in three phases as under: Diagnostic phase: This focussed on analysing the as-is situation of the state, developmental trends observed in the past and the issues impacting the state Synthesis phase: This focussed on developing key vision themes for the state Prescriptive phase: This focussed on recommending prescriptions for principal stakeholders so as to attain Vision Kerala s economic growth has been driven by growth in services, which account for over 60% of the state s economy. The state has traditionally enjoyed strong factor advantages in industries such as Rubber, Coir, Spices, Handlooms, Fisheries, Agro Processing, and Tourism. Furthermore, the Healthcare and Education sector has always been of importance in the Kerala s socio-economic milieu. Of late, Kerala has also been witness to certain emerging growth areas such as IT&ITES, Construction and Retail. 8. The share of agriculture, on the other hand, has been constantly declining. Many factors have contributed to the decline in agriculture. The land used for non agriculture purposes has been consistently increasing to reach 10% of total land available. The share of marginal shareholding is over 90%, which has contributed to lower productivity. The unremunerative nature of agriculture has resulted in gradual migration of agricultural workforce to other occupation, mainly jobs in urban areas. 9. Kerala has had a consistently higher level of human development comparable with that of many advanced countries. Kerala ranked first among major States in India in the Human Development Index (HDI) with respect to Education and Health at the three time points of 1981, 1991 and 2001 Kerala has the ninth highest per capita income of Rs 30,300 in the country compared to the Indian average of Rs 26, The growth of industry and services is hampered by the high labour costs prevailing, the pressure on land and high land costs and preference of white collar / non labour oriented jobs by the people of Kerala. At the same time, the state also has to nurture traditional industries such as handloom, coir, fisheries, which provide employment to a large section of the people. Page 4

5 11. Growth of knowledge economy, where information and knowledge rather than material resources are key, interconnected economies and a rapid pace of changes are some of the defining characteristics of the new global order. Countries and states would have little choice but to manage the globalisation process. 12. In addition to the changes caused by global winds of change, Kerala would have to manage other changes which are internal. Increased urbanisation, caused by increasing shift from rural jobs to urban jobs, would place tremendous pressure on urban areas. The state would have to ensure growth of appropriate industries that can generate employment opportunities so that the issue of large level of unemployment in the state is addressed. Demographic changes expected over the next 15 years would mean than around 20% of its population would be over 60 years, double from the present levels of 10%. Keeping in mind the limited resources available in the state, Kerala would need to develop a unique sustainable developmental model which facilitates growth, but not at the cost of the environment and resources. 13. Given its factor advantages, we believe that Kerala is well placed to witness all round growth over the next fifteen years till An analysis of the discussions we have had with a cross section of the people in the state reveals five broad, but interrelated themes that form the basis of the vision envisaged for the state. We believe that the five themes capture the aspirations of the people, the nature of development they visualise for the state and the relationships they wish to have with the world outside in general. Vision Themes Excellent quality of life Green and Sustainable development Opportunities for all Transparency in governance Globally Engaged Page 5

6 14. The vision for Kerala which reflects the common themes identified is defined as follows By 2025, Kerala would be a vibrant, sustainable modern state providing its residents globally comparable quality of life and opportunities to excel in their chosen walk of life. The vision calls for all the key stakeholders coming together, seeing a common vision, acting in unison and creating a modern and sustainable Kerala. This forms the basis of the action agenda for the Vision ACT Kerala 2025 (Advance & Create, Together Kerala 2025). 15. Continuing to remain green and ensuring a sustainable developmental process is one of the overriding themes of the vision that has been identified for the state. All the stakeholders met were unanimous that the Green Image of the state must be maintained. Kerala envisages adopting a unique sustainable growth plan that takes into account the resource availability and constraints that the state faces. The development process envisaged for the state, in terms of growth sectors promoted, the regions identified for growth, the spatial distribution of industries and residential areas, should be tailored to retain the green image of the state. 16. Some of the initiatives that need to be undertaken to ensure a sustainable development are a) Preserving forest cover Development of industries and services like tourism can have a detrimental impact on the forest cover in the state. Kerala faces a challenge in maintaining the forest cover at around 28 30%. b) Green urbanisation While increased urbanisation is inevitable in today s world, Kerala would need to manage the urbanisation process to ensure that the green cover is maintained. Policy initiatives to encourage construction of green buildings needs to be initiated. Planned urbanisation that ensures preservation of the environment and the image needs be taken up. c) Promote environmentally sustainable industries and services - Sectors that help Kerala maintain its ecological balance and do not add to pressure on land should be encouraged. Sectors that Kerala has such factors advantages include Tourism (including medical tourism), IT / ITES, Food Processing, Light engineering, Manufacturing of Electronics and allied products, Health Care, Retail, Construction, etc. Page 6

7 d) Maintain stringent environmental norms - Stringent environmental norms with respect to air, water and soil should be laid down and adhered to. These should be benchmarked with standards in environmentally conscious states / countries and be periodically updated e) Promote technologies that meet environmental standards - Technologies to meet the stringent standards can be expensive. The government should promote development of alternate low cost technologies suitable for developing regions. The government should also promote the adoption of such technologies by appropriate assistance / incentives to users. f) Effective waste management - Young people met as a part of the study have voiced their concern about the need for an effective process to manage the waste being generated in cities. The state should adopt a two pronged approach to waste management waste elimination and waste management. g) Efficient water management - Water is a precious resource and in addition to meeting the daily needs of people, water is key to other sectors such as tourism and inland waterways. A water management policy that facilitates judicious use of this precious resource, encourages use of water preservation techniques such as water harvesting, needs to be discussed, debated and agreed upon at the earliest timeframe. h) Encourage use of clean fuels - The governments should encourage both industry and individuals to use cleaner fuels (CNG / LPG) for their transportation and business needs. Policy initiatives and tax instruments could be used effectively to promote the use of such fuels. 17. Economic well being is a key ingredient for peaceful coexistence of various communities in a region or country. Differential growth patterns lead to resentment among the people who do not enjoy the fruits of growth as much as others do. Every citizen in the state should have access to opportunities for betterment of their lives. Kerala would provide everyone in the state the opportunities to enjoy the fruits of the potential growth and maximise their potential in the chosen field. There needs to be a balanced growth across the 3 regions of North, Central and South Kerala with increased focus in Northern Kerala. 18. Access to opportunities to participate can be realised in two ways (i) Policy initiatives to ensure all round economic growth in the state (ii) Skilling Keralites to take up jobs all over the world Page 7

8 19. We envisage that by 2025, the potential landscape for the Kerala economy would be encompass a strong service sector and a robust manufacturing sector with an emphasis on value addition. The state has the potential to grow at a similar or better pace than the Indian economy and achieve growth rates of 8 9 % in the future. The size of the state s economy has the potential to grow five fold to reach a size of Rs. 525,000 crores by The growth would be lead by the services sector, growing at around 10 % p.a and contributing to around 77% of the economy. 20. The share of the primary sector would continue to decline to reach about 5% of the overall economy. Some of the initiatives that need to be undertaken to revive this sector include (i) Increase productivity levels Kerala should target to be among the top 3 Indian states on productivity for key crops (ii) Promote collective farming practices that pool a number of marginal holdings into a single large holding. Introduce modern farming practices and increase efficiency and productivity (iii) Identify alternate source of income to farmers to increase viability of agriculture agro farming, animal husbandry (iv) Promote value added agriculture floriculture, horticulture and organic farming (v) Develop an agricultural plan for the state highlighting the type of crops to be focused on given the natural and soil conditions in the state and the competitiveness of the state in various types of crops 21. Services and Industries that are non-polluting and less land consuming need to be promoted. Such industries include Tourism, IT / ITES, Food Processing, Electronics and allied products manufacturing, Construction, Health Care, Light Engineering and Retail. 22. By 2025, the Keralite youth should be sufficiently prepared to undertake a variety of specialised and skilled jobs in areas such as financial services, IT services, R & D, etc. Addressing issues prevalent in the present educational system poor quality, lack of practical orientation, inadequate communication skills. Initiatives that need to be undertaken to achieve this vision include: (i) Promote a healthy mix of public and private schools and colleges and tertiary institutions Page 8

9 (ii) (iii) (iv) (v) (vi) Identify skill gaps prevalent among students passing out of the present system and address the same Take the lead in online educational programs targeted at global students Attract world class universities to offer specialised courses and programs through tie-ups with local institutions. Focus on high end studies and R & D. Encourage strong industry institution linkages to share knowledge Create an eco system that appreciates diversity and sharing of ideas. This would help in attracting experts from around the world and students from the global community 23. By 2025, Kerala should provide a globally comparable quality of life to its residents. Kerala enjoys one of the best standards in some factors impact quality of life such as access to health and relatively cleaner environment. However, Kerala has scope for improvement in a number of factors such as quality of schools and public transport systems for example. Key initiatives that would need to be undertaken to achieve this objective include: (i) Providing quality education at affordable cost in primary, secondary schools and colleges (ii) Providing access to specialised medical facilities. (iii) Reducing the incidence of stress related health issues and lifestyle diseases (iv) Develop housing schemes that aim at providing affordable houses to all with access to sanitation facilities, water and electricity. (v) Develop a comprehensive transportation plan for the state (vi) Promote establishment of diverse types of recreational facilities as Kerala grows it would attract larger talent from outside, whose recreational needs have to met also 24. Kerala, as it moves forward on its developmental cycle, would need to be adequately engaged with the rest of the world. The engagement can take varied forms (i) Viewing themselves as global citizens (ii) Skilling for jobs anywhere in the world Jobs without boundaries (iii) Collaborations and exchanges with other global economies spanning many facets economic, cultural, sports (iv) Enhancing trade with other economies Page 9

10 25. The desire of all the stakeholders is that the state should enjoy the benefits of a transparent and clean administration by Some of the initiatives that could go a long way in achieving this goal are (i) Ensuring continuity in key policies between various governments. The political parties should jointly evolve and agree on a Minimum Common Development Agenda for the state, which should be followed irrespective of which party or group is in power. (ii) Reliance on IT and e-governance (iii) Information for all on demand (iv) Grievance handling mechanism (v) Simplification of procedures (vi) Governance Audits 26. Towards realising the Vision 2025, the substantive role of concerted efforts by the various key stakeholders, viz., the State Government, the Industry, Organised bodies / Groups and Individuals is envisaged Roles of various stakeholders Consensus building Facilitator Ensure capacity building Government Industry Capitalise on opportunities Support in marketing the state Building scale and capabilities Feedback on the vision Adopt the vision Assist in specific initiatives Capitalise on opportunities Individuals Groups / Organised Bodies Mobilisepublic opinion Acts as a watch dog Assist on specific initiatives 27. The role of the State Government would be three-fold as follows: a. Facilitate development in the state through appropriate policy initiatives in various key sectors and taking steps to usher in administrative reforms and facilitate capacity building Page 10

11 b. To create world-class infrastructure that facilitates logistics and enables cost competitiveness. c. Market the capabilities and potential of the state to the external world 28. Two key roles have been identified for the industry in attaining the Vision 2025 for Kerala a. Focus on growth Operate efficiently and be globally competitive. Exhibit drive, ambition and capabilities to go global and be world beaters b. Act as Brand Ambassadors- Individual firms should become Brand Ambassadors for the state and promote its growth 29. Media in Kerala is well entrenched, has a widespread reach and has an acknowledged capability in shaping public opinion. The media has a responsibility in ensuring the overall development of the state. The media should play a positive role in the vision exercise in creating awareness about the vision for the state, mobilising public opinion and providing a forum for people to discuss the vision. 30. Organised bodies and civic movements have a long history of shaping government policy in Kerala Their presence should be positively channelised to realise the vision a. Active involvement in the Vision exercise - Assist in mobilising public opinion on the vision b. Act as a watch dog Monitor stake holders actions on implementation of the vision c. Implement specific initiatives 31. Individual residents have to provide appropriate feedback and help in building a consensus on the vision, in addition to participating in specific initiatives. 32. The vision needs to be discussed amongst a larger section of the stakeholders and a 3 phase approach is recommended for the same. Over the next 6 months, the government should partner with CII to catalyse the public opinion and evolve a consensus on the key vision themes for the state. This partnership should facilitate the transfer of ownership of the vision to all key stakeholders in the state and develop an implementation plan focussing on specific initiatives. Page 11

12 33. Vision 2025 for State of Kerala The way forward Public Discussion Evolving a consensus Implementation Attaining Vision 2025 for Kerala on the lines recommended in this document is a stretch goal for Government, Industry and other stakeholders in the state, but definitely worth striving for. If achieved, it will contribute handsomely to making Kerala a model state and provide a role model for sustainable development. The path of implementation of the Vision 2025 calls for some bold and pragmatic decision-making on part of state Governments and other stakeholders. The challenges for industry are no less in this cause, and essentially call for actions to attain global standards in operational efficiency and be globally competitive. Given the factor advantages prevalent in the state, and the aspirations of the people, we think that Vision 2025 is a doable challenge, and will be extremely rewarding to all stakeholders. Working together, all the stakeholders can act and create a Model Kerala that the world can look upto. Page 12

13 1. Introduction The Kerala State Council of the Confederation of Indian Industry (CII) mandated ICRA Management Consulting Services Limited (IMaCS) for assistance in formulating a 2025 Vision for state of Kerala. The state of Kerala has been witnessing rapid economic growth in the past few years, driven by a strong growth in the services sector. In addition to the economic growth, the state has also performing well on the social development front and is the leading state in India in terms of Human Development Index (HDI). The state has immense potential to realise growth in all developmental spheres economic, social, cultural and quality of life. In his address to the State Legislative Assembly, the President of India, Dr. A.P.J. Abdul Kalam urged the State to identify its core competencies and adopt 10 diifferent missions, including development of tourism, waterways and deep-sea fishing, development and marketing of knowledge products and pharmaceutical products, creation of an army of nurses and paramedics to meet the rising demand at national and global levels, setting up of exclusive economic zones to attract NRI and other investors, value addition to tea, coffee, spices, coconut and fruits and use of space technology for industrial development to achieve its development goals. India is expected to emerge as one of the leading economies globally by 2050 and the southern states (Andhra Pradesh, Karnataka, Kerala and Tamil Nadu) are expected to contribute significantly to the emergence of India on the global scene. CII Southern Region realises that the Southern States have been leading the economic growth of the country and have been able to attract investments across various industry and services areas. The action plan for the Southern States is to identify synergies between the states and share learning and best practices. CII- Southern Region realises the developmental potential of the region and wishes to exploit the same by harnessing the resources and capabilities of each state. CII (Kerala State Council) has mandated IMaCS to assist it in developing the vision for the state of Kerala. 1.1 Scope and Coverage of this Report In the process of formulating the Vision for the state of Kerala, this report provides: (i) An insight into the present state of Kerala; Page 13

14 (ii) (iii) An articulation of a Vision 2025 for the state of Kerala; and A perspective on the strategies to achieve the Vision and the role of stakeholders 1.2 Approach to the Study Enunciating the Vision and formulating a policy that will provide the necessary environment for its fruition was a three-phase exercise as shown in Figure 1.1 Figure 1.1 Approach to the study Phase 3 Phase 1 Diagnosis Review as is situation in Kerala Phase 2 Synthesis Define Vision Understand the aspirations of the stakeholders and define a Vision for the state Prescriptive Recommend strategies Recommend strategies and highlight interventions by stakeholders to achieve Vision Phase I Diagnosis Given that Kerala has witnessed economic growth and is poised to maintain the growth trajectory, the starting point of our study was to take stock of the as-is situation of the State of Kerala. This phase focuses not only on economic parameters, but also on other developmental aspects such as medical and health facilities, the quality of education, etc. Wherever possible, we have attempted comparisons with other comparable states in India. Phase II Define Vision This phase focused on articulating a realistic 2025 Vision for the State, given the opportunity landscape and the factor advantages of the state and the aspirations of the people in the state. We have conducted the study by interacting with the principal stakeholders in State and by building on secondary research on the State. These include the following: Spectrum of political leadership in the state both the ruling and opposition parties The State government secretaries of key government departments Page 14

15 The entire industry in the State Key sections of society Farmers, Academicians, Students, etc The residents of the state The stakeholders have been met through one-on-one discussions and focus group discussions Phase III Recommend role of stakeholders and the way forward Having formulated the Vision, we proceeded to provide a perspective on the strategies and interventions to be adopted by the key stakeholders, namely the state Government, the Industry and the citizens of the state and specific roles to be played by each. A Vision of this nature, to be successful should evolve from the stakeholders and have their substantial buy-in. Over the course of this study, we have conducted discussions with a crosssection of the stakeholders, which helped us gain insights into aspirations of the people, their vision of the future and the issues faced by them Structure of this Report This reports attempts to define a high level Vision 2025 for the state. The objective of this exercise has been to bring to light the developmental targets that the state should aspire for. This report should be viewed as a starting point for a discussion on the vision for the state. As more stakeholders (government, other groups) take ownership of the vision exercise, the vision can be fine tuned. The report presents the broad initiatives that need to be rolled out to achieve the vision. Specific strategies and initiatives would then be a result of the consensed vision. The report is organised into five chapters. This introduction is followed by Chapter 2 which provides an overview of the as-is situation in Kerala. The next chapter focuses on identifying the global dynamics (as relevant to this study) by 2025 and how it could impact the State. Chapter 4 defines the vision for the State of Kerala. Having identified the vision for the state, we have looked at next steps and the way forward in Chapter 5. This chapter also discussed the roles of various stakeholders in achieving the vision. Page 15

16 2. Overview of Kerala Kerala, located in southern India, is unique in many respects. It has a long and cherished history. Post Independence, the states has witnessed significant progress on the human development aspects and boasts of the highest literacy rates in India and one of the best health care systems in the country. As a result, Kerala tops all the other Indian states in the Human Development Index (HDI) score. Kerala occupies around 1.18 % of the land mass of India, but accounts for 3 % of its population. The population density at 819 people / sq km in Kerala is one of the highest among Indian states. This is reflected in the severe pressure on land that is observed in Kerala today. Table 2.1 Kerala Key Data Indicator India Kerala % share of Kerala in India Land Area (Sq Km) Census % Population(Crores)Census % % Population Below Poverty Line 27.5% 15% Total Employment (Crores) Census 01 % households having electricity ( ) % households with toilet access ( ) % households with safe drinking water facilities Census 2001 * % 67.9% 91% ( 3 rd highest among major states) 44.5% 96% ( highest among major states) 77.9% 23.4% ( Lowest among major states) * - Access to Taps, Handpumps, Tubewells and Wells within or outside the house Definition of Planning commission of India Source: Economic Survey, Government of India, Census 2001 Kerala contributes a larger share (3.7%) to the Indian economy as compared to its share of total size and population. Similarly Kerala accounts for almost a quarter of the NRI remittances that the country receives a reflection of the fact that a large number of Keralites have been successfully employed outside India, especially Middle East. Table 2.2 Kerala Key Economic Data Page 16

17 Indicator India Kerala % share of Kerala in India GDP (Rs 000 Crore) , % Primary % Secondary % Tertiary % Exports(US $ Mn) % FDI(US $ Mn) Jan 00 Jan % NRI Remittances(US $ Mn) % Source: Economic Survey, Government of India, Dept. of Economics and Statistics Kerala has had a consistently higher level of human development comparable with that of many advanced countries. Kerala ranked first among major States in India in the Human Development Index (HDI) with respect to Education and Health at the three time points of 1981, 1991 and 2001 Kerala has the ninth highest annual per capita income of Rs 30,300 compared to the Indian average of around Rs 26,000 Table 2.3 Kerala Human Development Indicator Kerala India Life Expectancy at birth IMR (per '000) MMR/lakh Females/ '000 Males Literacy 90.90% 65.38% Source: Kerala Human Development Report, Current Status of the Kerala Economy The size of the Kerala economy was around 107,000 crore in The state GDP has grown at the rate of 6 7 % CAGR since the last seven years and has kept pace with the growth of the Indian economy. The growth in the Kerala economy has driven by the growth in the tertiary (services) sector. The share of the services sector in the overall economy has increased from 38% in to around 61% in While the secondary sector (manufacturing) sector has Page 17

18 marginally declined, the primary sector (agriculture) has seen a significant decline in its share from 37% in to around 17% in Figure 2.1 GSDP (000 s Cr) at Constant Prices and Trends in Composition of GDP % 21% 22% 22% 61% 57% % 22% 48% % 26% 44% % 26% 42% Source:CSO % 25% 38% 0% 20% 40% 60% 80% 100% Primary Secondary Tertiary Of the various sectors constituting the state s economy, Trade, Hotels and Restaurant (primarily tourism sector) is the largest contributors and accounts for around 22% of the state s economy. Other key contributors include Real Estate and Business Services (~ 9%) and Banking and Financial Services (~ 6%). Constructions is also a key contributor to the state s economy accounting for around 14% of the GSDP Figure 2.2 Key Tertiary Sectors contributing to Kerala s economy Real Estate, Ownership of Dwellings and Business Services GSDP, 8.78 Banking and Insurance GSDP, 6.25 Public Administration GSDP, 4.68 Primary GDSP, Other Services GSDP, 8.7 Secondary GSDP, Trade, Hotels and Restaurants GSDP, Source: Government of Kerala Communication GSDP, 2.84 Transport GSDP, 7.71 Storage GSDP, 0.01 Page 18

19 The analysis of district wise performance on key parameters is shown in figure 2.3. This indicates that the central districts and southern districts have been able to progress at a much rapid pace as compared to the northern districts. The northern districts have some of the lowest per capita income and are also lowly placed on the HDI rank. The developmental plans for the state should take cognisance of this fact and place special focus on the development of the northern districts. District Figure 2.3 Districtwise Performance Share of GSDP (%) ( ) GSDP growth rate (%) ( ) Per Capita Income (Rs) HDI Rank Trivandrum 11% 6% 31,949 9 Kollam 8% 5% 27,817 6 Pathanamthitta 4% 8% 31,555 3 Allapuzha 6% 6% 29,305 4 Kottayyam 7% 7% 33,541 2 Idukki 4% 2% 31, Ernakulam 14% 16% 44,054 1 Thrissur 10% 6% 31,375 5 Palakkad 8% 12% 27, Mallapuram 8% 11% 20, Kozhikode 9% 7% 29,274 8 Wayanad 2% 6% 26, Kannur 7% 12% 28,348 7 Kasargod 3% 4% 24, Source: Kerala Human Development Report 2.2 Sectors driving the state s economy The state has traditionally enjoyed strong factor advantages in industries such as Rubber, Coir, Spices, Handlooms, Fisheries, Agro Processing, and Tourism. Furthermore, the Healthcare and Education sector has always been of importance in the Kerala s socio-economic milieu. Of late, Kerala has also been witness to certain emerging growth areas such as IT&ITES, Construction and Retail. Table 2.4 Sectors driving the state s economy Page 19

20 Sector / Factor Growth Drivers Factor Advantages Agriculture Cash Crops: Coconut, Rubber, Coir, Spices Historical, Climate, Fertile Land, Availability of Water Fisheries Marine, Coastal Fishing Historical, Long coastline Tourism Industry Recreational/ Traditional health treatments Food Processing, Light Manufacturing, Minerals, Construction Locational, Historical, Well developed social and health infrastructure, Brand Image Backward linkages, Availability of natural resources Services (Other than Tourism) Information Technology Availability of Skilled workforce, Good IT Infrastructure, Low 0perational costs Expatriate Remittances High level of remittances 1/5 th of NSDP Historical, Market abroad for skilled labour. Source: IMaCS Analysis Rubber and Coir: Kerala accounts for about 90% of the Rubber production in India, which was around 7.60 lakh tonnes in Kerala is the home for the Indian coir industry, accounting for over 85% of the coir products. Kerala produces over 180,000 tonnes of coir fibre with Allapuzha being the backbone of the industry in Kerala. As per information available with the Coir Board, about 1,17,495 tonnes of Coir and Coir products, valued at Rs. 461 crore were exported in The sector is a large employer, providing employment to about 4 lakh persons. Spices: Kerala accounts for more than 70% of the Spices export from the country, the major items being pepper, cardamom, ginger, turmeric, curry powder, oleoresins, vanilla, nutmeg and mace. Handlooms: The handloom industry in Kerala contributes about 16% of the handloom fabric produced in India. The handloom industry in Kerala accounts for Rs 238 crore of exports, which is roughly 10% of the handloom exports of the country. Kannur district accounts for 98% of the exports from Kerala. This sector is estimated to employ about 1.8 lakh persons. Fisheries: Kerala has 44 rivers and 590 Km of coastline. The state has 8 fishing harbours and 14 fish landing centres. It is estimated that there are 29,177 operational fishing crafts in Kerala. In contributing 1.7% of the Net State Domestic Product (NSDP) and providing livelihood to about 8.5 lakh fishermen, the Fisheries sector is key to the people of the State. Page 20

21 Marine fish production in the Sate was estimated at 5.59 lakh tonnes in Marine exports through Kerala ports were valued at Rs 1258 crore in 2005, which formed 17 % of total marine exports from India. Agro Processing: According to estimates of the Ministry of Food Processing Industries, Government of India, the market for value added food in India is estimated to reach around Rs. 4,00,000 crore by The sector has been growing at about 7% per annum and is slated to grow at 10%, due to factors such as rising incomes and changing lifestyles. There are an estimated 40,000 units in the food processing sector in India, of which nearly 1,274 units exist in Kerala alone. Kerala is third largest in terms of number of licensed food processing units after Maharashtra and Tamil Nadu. Nearly 40% of the processing units of marine products in the country are located in Kerala. The KINFRA food park, Aroor, is one of the largest food processing locations in the country. The State is richly endowed with resources and raw materials such as fruits and vegetables, vanilla, spices, and freshwater and marine fishes. The Kerala Industrial Infrastructure Development Corporation (KINFRA) set up ADFIK (Agency for Development of Food Processing Industries in Kerala) to coordinate activities in the food processing sector. KINFRA is actively involved in allocating land for food processing units in Kakkancherry in Malappuram. The Government is planning to collaborate with the Spices Board to set up spices parks at potential locations like Idukki and Wayanad. Tourism: Kerala, known as God s Own Country, has always been at the forefront of India s Tourism industry and a torchbearer of the Incredible India campaign globally. Trade, Hotels and Restaurants (including Tourism) contributed per cent to the state s GSDP in The total revenue (including direct and indirect) from tourism during the period January-December 2007 was Rs.11,433 crores. Travel and tourism generates 6.2% of total employment. Around 1 million people are employed in this sector in Kerala. There has been a significant growth in the number of both foreign and domestic tourist arrivals into the State, which has exceeded 7 million in World Travel and Tourism Council (WTTC) estimates tourism demand of Kerala is to grow by 11.6% per annum over the next decade. A growth of 23.5% is predicted in terms of external account earnings from travel and Page 21

22 tourism over the next 10 years (India's estimates for this period are 14.3% while the world average is only 6.5%), thus making Kerala an important hub of tourism in India and the world. Figure 2.4 Tourism Arrivals in Kerala Foreign Tourist Arrivals Domestic Tourist Arrivals Source: Directorate of Economics and Statistics, Government of Kerala Some of the key thrust areas and policy initiatives are presented below. Figure 2.5 Policy Initiatives in the Tourism sector Thrust in Medical Tourism Government Initiatives in the Tourism Sector Initiatives in the new Tourism Policy The key selling points of the medical tourism industry are its cost effectiveness and its combination with the attractions of tourism, traditional therapies and treatment methods. Most of the modern treatment facilities that can be availed in Kerala are cheaper by 40 50% when compared to other countries. Kerala Health Tourism, by 2010, would enjoy at least 20% market share of medical tourism in India. An investment of Rs100 bn in Hospitality sector is proposed. An investment to the tune of Rs50 bn by 2012 in support of infrastructure investment is proposed. Plans to rope in Culture, Health, Forest, Irrigation, Electricity and Fisheries departments for the overall development of the sector. Are underway. Plans to set up Special Tourism Zones (STZs) along the lines of the Special Economic Zone are underway. Non requirement of approval for foreign equity of up to 51% in tourism projects. NRI investments allowed up to 100%. Approvals for Technology agreements in the hotel industry on automatic basis. Concession rates on customs duty of 25% for goods that are required for initial setting up of facilities. Approved hotels are entitled to import essential goods relating to the hotel and tourism industry up to the value of 25% of the foreign exchange earned by them. IT&ITES: The IT&ITES is one of the important emerging sectors of Kerala s Economy. The State s software exports grew by 66% to reach Rs. 750 crore in It is expected to touch Rs. 1,200 crore by Despite having set up the country s first IT Park at TechnoPark in Page 22

23 Thiruvananthapuram, Kerala has a long way to go to catch up with its southern neighbours in terms of exports. Karnataka leads the IT exports in the country notching up Rs 48,000 crore during , while Tamil Nadu earned export revenues amounting to Rs 20,700 crore. Andhra Pradesh had exports of Rs18,500 crore. The Government has specific plans to promote this sector in the State as is evident from its IT Policy. To ensure that the benefits of Information and Communication Technology (ICT) services reach the common man, Government of Kerala proposes to set up around 3,000 broadband-enabled information hubs called Akshaya e-centres throughout the state. The Project aims to provide provides functional computer literacy training to at least one person from each of 64 lakh families in the State. The following provides the growth drivers and initiatives underway for the IT&ITES sector in Kerala. Figure 2.6 Growth drivers in IT / ITES sectors Growth Drivers Kerala has a high density of science and technology graduates with engineering colleges producing more than 23,000 qualified engineers every year Technopark, Trivandrum and Infocity, Kochi are key hubs Low real estate costs as compared to other IT parks in the country Salaries are 1/5 th of international average Lower cost of living period IT / ITES Industry in Kerala. Investments 350 acre Smart City and 400 acre Hi Tec city in Kochi Underway. These two projects alone are expected to create 150,000 jobs in next 1o years The state government has announced a 500 acre Techno city to be built in Thiruvananthapuram and a similar facility is proposed in Kozhikode The Cochin International Airport is developing an IT park within its complex, while realty majors have announced a number of projects to build IT infrastructure in the state Other Emerging Sectors Light Engineering and Construction: The State enjoys high literacy levels and has a large number of engineers. There is an inherent preference for jobs with higher skill levels. With land being a scarce resource preventing the Page 23

24 establishment of large and heavy industries, Light Engineering 2 has emerged as important sector to provide employment to the State s skilled labour pool. The Light Engineering industry, contributing about Rs. 2,100 crore, is expected to grow at about 15% in the State and presents itself as an area with immense potential. Kerala also has advantages to exploit in Electronics and allied manufacturing industry such as relatively clean environment and presence of qualified work force. Construction activity in the State is expected to grow at around 20%, backed by the need for infrastructure, demand for housing, and flourishing Real Estate businesses. Kerala is renowned for its system of health care, which needs to be exploited. The name and recognition that ayurveda has achieved over the years can be translated to modern medicine and modern health care, for Keralites and non Keralites, can grow into a large industry in Kerala State of Agriculture in Kerala Agriculture contributed to 37% of the GSDP in which has declined to 16% in This trend is expected to continue with Kerala s economic growth being led by services Major crops in Kerala and trends in production The major crops in Kerala are as follows: Food crops: Rice, Pulses, Ragi, Cereals Cash crops: Cardamom, Areca Nut, Banana, Mango, Pepper, Sugarcane, Cashew, Tapioca, Cotton, Groundnut, Tea, Coffee, Rubber, Tobacco, Coconut. A summary of the status with respect to some of the key crops is provided below: Rice: The area under rice cultivation has declined from 6.78 lakh hectares in to around 2.90 lakh hectares in , a reduction of 57%. The productivity has not significantly changed during the last decade, resulting in a decline in production of rice. Plantation Crops: The key plantation crops are rubber, tea, coffee and cashew. The area under cultivation of plantation crops has increased from 3.3 lakh hectares in to around 4.8 lakh hectares in , an increase of around 45%. In terms of productivity, the productivity of rubber has increased from 1057 kg / ha in to 1457 kg / ha in On the other hand, both Tea and Coffee have shown declining trends in productivity. 2 Light Engineering includes industries such as fabrication, ball bearings, machine tools and allied products, fasteners, medical and surgical equipments, Page 24

25 The picture shows the changes that have happened to area under cultivation of key crops during the period to Figure 2.7 Changes in Area under key crops Source: Department of Economics and Statistics Land utilization, Land holdings, and Issues faced in Agriculture in Kerala The table below shows the land utilisation pattern in the state since This captures the key trends of conversion of agricultural land for non agricultural purposes. While the forest cover had remained constant, the land put for non agricultural use has increased by around 11% during the 4 year period till to reach around 10 % of overall land available. This process had been accentuated over the last few years due to the real estate boom the country has been witnessing. Table 2.5: - Land Use Pattern Page 25

26 Area % Area % Area % Area % Total Geographical Area 3,885, ,885, ,885, ,885, Forests 1,081, ,081, ,081, ,081, Total Cropped Area 3,001, ,021, ,992, ,970, Land Put in non agricultural use 354, , , , Source: Directorate of Economics and Statistics The size of the average land holding in Kerala as per the Agricultural Census, , was 0.13 hectares (0.32 acres) for a marginal land owner. There were 6,335,428 marginal land owners in Kerala at the time of census. A mere 7% of the total 1,569,487 hectares of land is classified as large holdings, while more than 90% of the holdings were marginal holdings. Table 2.6 Average Size of Land Holding Type of Holding Average Holding (Hectares Per Person) Average Holding (Hectares Per Group) Average Holding (Hectares Per Institution) Marginal Small Semi Medium Medium Large Source: Directorate of Economics and Statistics Fragmented land holdings, the fallout of years of well-intentional land reforms, have increased the cost of production and removed the synergies of large land holdings. High cost of labour and lack of technological upgradation in agricultural practices have rendered some of the agricultural activities unviable. This is specifically evident in food crops, certain spices, and coconut State of Infrastructure in Kerala Road Network The total network of roads in the state is in excess of 110,000 kms. The State s road density is four times the national average Rail Network Page 26

27 The state s rail network is in excess of 1,200 kms and is well connected to rest of the country. The connectivity to regions such as Mumbai and Pune has been enhanced after the operations of Konkan Railways have commenced Air Connectivity The state has 3 international airports (Cochin, Tiruvananthapuram and Calicut) and a fourth airport has been proposed at Kannur. The three airports offer good connectivity to the domestic destinations and also to international destinations, mainly the gulf countries. Cochin Airport has the distinction of being the first private airport in the country. The proposed airport at Kannur is expected to provide a fillip to promoting trade, commerce, and tourism in the northern and Malabar regions of the State Ports and Waterways The state has an international sea port at Kochi, three intermediate ports at Neendakara, Alappuzha, Kozhikode and 12 minor ports. The ports in Kerala handle 3.3 % of the total cargo handled in the country. Plans are afoot to develop a Container terminal facility at Vallarpadam and a port at Vizhinjam. Kerala also has a well established inland water transport network, which serves the water logged areas of Alappuzha, Kollam, Kottayam, Ernakulam, Kasargod and Kannur districts Communication The State has a well-developed telecommunications infrastructure with the highest teledensity in the country at / 1000 persons. As on 2006, there were 333,176 internet connections. Kerala has two submarine cable landings and supports a bandwidth of 15 Gbps. Kochi, the primary international gateway, handles two-thirds of the country's data traffic. The State has 5,071 post offices as on , which translates into 1 post office for every 7.9 sq km compared to the Indian average of 1 post office for every 21.2 sq km Power The State has 17 hydel units and one wind power unit. All these units put together amount to a capacity of around 2,311 MW. While majority of the hydel units have a capacity in the 10 to 75 MW range, the biggest unit is located at Idukki which can produce 780 MW of power. Power development in the state is based on its hydro-potential. The Government of Kerala is encouraging private sector participation in augmenting power supply. The Government has Page 27

28 also given a thrust to develop hydro-electric power through small and medium projects. Some of the new important thermal projects include the Brahmapuram Diesel Power Project, the Kozhikode Diesel Power Project at Nallalam and the third unit of the combined cycle power project of NTPC at Kayamkulam Business Infrastructure Development of industrial infrastructure in the State is pioneered by the Kerala Industrial Infrastructure Development Corporation (KINFRA) through Industrial Parks, and by Kerala State Industrial Development Corporation (KSIDC) through Small Industries Development Corporation (SIDCO) Parks. A snapshot of the business infrastructure created by the State Government through KINFRA is presented below. Table 2.7: Business Infrastructure created by KINFRA Source: Department of Industries, Government of Kerala The KSIDC identifies backward/rural areas where it creates infrastructure required for industries to develop. Power, Water Supply and Telecommunications infrastructure is provided. Road laying and construction of buildings is taken up. These are called Growth Centres. There are 4 growth centres at present at Malapuram, Alapuzha, Kozhikode and Kannur. SIDCO has 12 Industrial Parks, 17 industrial estates and 34 mini industrial estates covering a total of 339 acres. 2.3 State of Social Infrastructure in Kerala Page 28

29 2.3.1 Educational Infrastructure The Government expenditure on Education is 20.96% of revenue expenditure in Kerala. This is higher than Karnataka (19.48%), Tamil Nadu (19.16%), Andhra Pradesh (14.3%), and India (12.76%). The per capita expenditure on education is highest in Kerala. The State has around 9870 primary schools and 2781 secondary schools. The following table presents a snapshot of the State s infrastructure in Higher and Technical Education. Table 2.8: Higher and Technical Education Infrastructure in Kerala Type of Institute No. of Institutes Deemed Universities 1 Institutions of national importance 1 Research Institutions 1 Arts and Science Colleges 353 Engineering Colleges 84 Medicine (Allo/Ayur/Homeo /Unani/Nursing/Pharm) 40 Teacher Training Colleges 21 Others (Law/Mgmt/MCA/IT/Agri) 82 Teacher training Schools 184 Polytechnic Institutions (government and aided) 56 ITI and ITC 549 Source: Selected Educational Statistics Health Infrastructure Kerala has been a leader in health and related infrastructure. The State has about 403 beds per lakh of population. Per capita expenditure on health was Rs. 238 in , as compared to the Rs. 191 in India. Table 2.9: Beds per lakh of population Page 29

30 Source: Economic Survey of Kerala The better access to health facilities is also reflected in the health indicators where Kerala is one of the best states in the country Table 2.10: Birth Rate, Death Rate, MMR, Sex Ratio, Life at Birth Kerala v/s India (All expect life at Birth per 000 population) Source: Economic Survey of Kerala Table 2.11: Health Indices Kerala v/s India Source: Economic Survey of Kerala ; Figures in bracket indicate India numbers. Page 30

31 2.4 Fiscal health of Kerala Fiscal deficit Fiscal deficit in Kerala as a proportion of GSDP was estimated to be around 6% in in the revised estimates and higher than other leading states in India. However, the actual fiscal deficit was lower at 2.9%, due to buoyant tax collection. (which factor could be applicable to other states also.) Figure 2.8: Fiscal deficit a comparison ,05 06 Avg Est Actuals Source: Reserve Bank of India, Kerala State Finance Department The revenue deficit in the state was also estimated at higher levels than other states at over 4.5 % in Such high deficit may prevent effective domestic capital formation and investments. However the actual deficit for was around 3 %. Figure 2.9: Revenue deficit a comparison ,05 06 Avg Estimate Actual Source: Reserve Bank of India, Kerala State Finance Department Page 31

32 2.4.2 State Revenue and Expenditure Kerala s own Tax Revenue is at 9 % ( ) of its GSDP which puts it at a moderate position compared to the other states. It performs better than Gujarat, Maharashtra and Punjab. Since taxes are levied on expenditure, which is funded out of household disposable income inclusive of external remittances, the Kerala own tax revenue to GSDP ratio are higher than for other states not receiving remittance income. Kerala s non-tax revenue however, at 0.8 %( ) of GSDP is lower than all 6 states. Figure 2.10: Kerala Non-Tax Revenue to GSDP Non Tax Revenue/GSDP AP Gujarat Karnataka Kerala MaharashtraPunjab TN Pondicherry 03-04,05-06 Avg Source: Reserve Bank of India Expenditure: Around 33% of the state s expenditure is spent on salaries and wages for employees (included under others in the chart below). Interest and Pensions account for another 42% of the expenditure. Figure 2.11: Expenditure Budget Estimate 570,249, 23% , 33% 56,090, 2% 457,781, 19% 155,571, 6% 405,483, 17% Social Security and Welfare Interest Payments and Servicing of Debt Interest on Small Savings,Provident Funds, etc. Pensions Salaries Others Source: Reserve Bank of India Page 32

33 Development expenditure at 10.4% of GSDP is almost the same as Gujarat and marginally lower than other states. Non Development expenditure at 8.3% is higher than all states except Punjab, as a result of high levels of debt servicing by the State. Figure 2.12: Development Expenditure as a % of GSDP Pondicherry Tamil Nadu Punjab Maharashtra Kerala Karnataka Gujarat Andhra Pradesh ,05 06 Avg Source: Reserve Bank of India However, Capital Outlay to GSDP at 0.7% is much lower than the other states, which points to the fact that the state lacks funds to plough back to enable planned development. 2.5 Key issues facing the state There are issues facing the State which are serious challenges from the perspective of economic development Issues facing the State in Agriculture Some of the key issues facing the agriculture sector are : Non viability of agriculture: Some of the issues highlighted earlier marginal holding, declining productivity, etc have resulted in agriculture being non viable from a farmers point of view. The table below captures the cost of agriculture and the income generated for the farmer. In the case of rice production, the farmer barely breaks even on his input costs. Page 33

34 Table 2.12 Source Dept. of Economics and Statistics Shift from agriculture : As a result of the non viability of agricultural sector, there are two shifts that are happening today i) shift from agricultural jobs to non agricultural job resulting in non availability of manpower for agricultural jobs such as coconut plucking and ii) conversion of agricultural land to non agricultural use. Increase in fallow land: Large proportions of land are left uncultivated as people have moved to the city for jobs and are unable to take care of the land. Declining Productivity: Due to large proportion of marginal holdings and inability to modernise, the productivity in a number of crops has declined over the last decade Issues facing the traditional sectors in the state The key issues facing the traditional sector in the state are: Need to modernise, upgrade technology Inadequate market linkages Lack of working capital Need to upgrade product focus on value added products, add new designs Page 34